Roy: I'm not a criminal. I'm a con man.
Dr. Klein: The difference being?
Roy: They give me their money.
Dr. Klein: That's a nice rationalization, Roy.
This dialogue in the con-man film “Matchstick Men” came to mind as we updated the latest chapter in the saga of the Detroit Riverfront. It has been a fascinating story to cover because, whenever you, as they say, “follow the money,” you never know what happens when you pull that thread. In this case, the fish on the line jumps out of the water: $40 million missing.
Where did it go?
Even with all the fun spending in the world, you could imagine, that’s a lot of nickels and dimes to be throwing around. One thing I hope the criminal investigation uncovers is, where did the money come from? As CFO.com noted in its coverage, Form 990s indicates annual revenues jumped from around $5 million in 2017 to nearly four times that amount in 2018.
When we posted this story to LinkedIn, reader and CFO Otto Gretzinger commented (formatting mine):
Just basic internal controls (segregation of duties) were needed here.
A few examples would be:
- Two person signing of checks and wire transfers, never trust a sole individual or put someone in that position to even tempt them;
- Have a third person doing the monthly bank reconciliation or simply having the bank statement mailed (or read-only) to third person; and
- Simple monthly financial reporting in the use of the charity's cash;
- Switching external auditors on a regular basis (3-7 years).
The clarity Gretzinger offers is why CFO.com continues to highlight these stories; not simply because of the criminal element, but because prevention often manifests in a very clear delineation of duties and visibility across the spectrum. And those 44 board members, who reporting noted are some of the region’s top business and civic leaders, should reasonably have been aware of the implications involved if controls were not in place.
It is not my place to infer or make accusations — ideally those will be borne out through the criminal investigation — but with this amount of money in play, and for how long the transgressions allegedly transpired, it is difficult not to reach the same conclusion as Donna Givens Davidson, a nonprofit exec who runs the East Side Community Network in Detroit. She told the Detroit Free Press:
“What it feels like to me is the good old boys ... The good old boys network didn’t police itself and someone took money ... [The Conservancy] didn’t do enough to scrutinize [Smith] and allowed him to cross too many lines he shouldn’t have been allowed to cross and these are lines most nonprofit leaders wouldn’t be allowed to cross.”
So, per the title of this post, fool or knave?